Keep or Sell?

Question

I have a condo currently cashflowing about $250 a month ($2250 rent - $2000 PITI + HOA). I have about $100k equity in it. It is currently on a 15 year schedule and I have 12 years until paying it off. The interest rate is 2.375% so I am having a hard time letting go of the excellent rate.

My question is: To scale from here, should I sell it and buy a fourplex as a house hack? I understand it depends on the deal, but just wondering if this is the right direction to consider.

Living in MN.

James Hamling · Answer

I get-it how many want to promote "there" way of doing things, and often state it as "you should ___", because it's what they would do.

That's my first bit of advice, context.

I see it that your first decision is; to scale (grow), to coast (doesn't sound of interest or else you wouldn't be asking these questions, right), to exit (cash-out) or to transfer.

Now that last one "to transfer" seems to be rarely considered. Why, I have no idea. Especially as just about every big name on BP has shared various stories of having done exactly that through the stages of there career.

There is other words used for this; consolidation, lateral moves etc etc but they all speak to the same thing. Selling the current assets to roll over to other assets to alter the operations and performance.

Like selling say sec8 properties to get into class A/B, because the $ is there and want easier operations, less headaches, etc..

Or could be as simple as current property is with some years on it and want to get out before cap-x starts eroding away things, moving into something that resets that clock.

There is no universal right or wrong, it's personal, it should be a strategy that enhances your life not takes away from it. Far too little is spoken of this in the various "you should' s" of REI advice.

So start there, that is the most immediate decision point. Next, it's onto the How, When, Where's and What's, details. But details come after the decision.

James Hamling · Answer

@Aileen Ouyang I understand where coming from.

If you want to grow a portfolio, the math is clear, you must sell to Pyramid UP.

$250mnth is not good performance. Think on it, how much does $250mnth buy for a furnace, a/c, water heater, carpets, really any reno at all? Next to nothing, right.

So, in reality every month your moving close and closer to sucking out months/years of profits via items aging out, cap-x coming to bear.

The real key item here is the equity. I am curious is the total equity $100k, or is that the accrued equity?

See, when building a portfolio, appreciation is key, and the #1 factor that will dictate things. Cash-flow is for "keeping the lights on" as in covering operational expenses to defend against any need for additional capital investment.

It's understandable to think a paid off property will "make more $" but it's just not true. Keep in mind tax's. When a property is paid off, you have all that tax, and your not getting that $, your getting a % of that $.

But when it's equity gains, no tax, only at time of sale and if you 1031 Uncle Sam let's you continue to use that tax-$ for investing purposes. That's HUGE right there.

Paid-off hurts, not helps portfolio growth.

There is life stages to investing, and the math is clear that strategic debt use, strategic leverage, pyramiding, appreciation, is the wealth generator.

Debt paydown, getting to 0 debt, that is the "reaping" phase of things.

So I say selling is most likely your best course but regardless, to grow your portfolio stop doing 15yr terms.

Mat O'Grady · Answer

@Matthew McCarty At the beginning of my investing career, I was constantly looking at websites like Zillow and Redfin to see what houses are selling for so that I have a good feeling on the market I picked. I have been able to buy houses of the MLS because their list price was good and I offered cash without contingencies. I also contact the listing agent for the showing and to put in the offer. They are more motivated to get the seller to sign with someone without an agent because they get more commission. You can also look at sites like auction.com, homepath.com and homesteps.com. There are also deals that can be find on jud.ct.gov for foreclosure auctions but those rarely work out because the people usually owe more than the property is worth or they get cancelled and postponed frequently.

Mat O'Grady · Answer

@Matthew McCarty and @Aileen Ouyang

Investing in anything is specific to each individual's goals. How fast do you want to scale? Are you OK with getting wealthy slowly or are you trying to do it as quick as possible?

If I were in your position, I would look for a bank or credit union that will give you a line of credit against the rental property. They are hard to find, but they do exist. The line of credit will give you the access to the equity in the property without having to pay interest on it. You pay to open it up, but you won't pay monthly unless you take money out. You will only pay interest on the amount of money you use. This gives you the flexibility to find a deal on your own timeline and to act quickly when a deal does come up because you won't need to get bank approval to use the line of credit.

Jake Andronico · Answer

@Aileen Ouyang

Can you save money while keeping it?

It 12 years, assuming you make no extra payments, you'll have a paid off condo that cash flows a lot better.

Can you house hack without selling it? Assume a mortgage or figure out another creative strategy?

Wale Lawal · Answer

@Aileen Ouyang

The decision to sell and house-hack a fourplex can be based on several factors. The first option is to keep the condo, which offers a low interest rate and predictable cash flow. However, this may limit flexibility and take time to scale. The second option is to sell and house-hack a fourplex, which offers more units, higher potential cash flow, leverage equity, and appreciation potential. However, this may also affect returns and management burden. To decide, consider your ultimate goal, manage more tenants, and analyze potential fourplex properties to compare their returns. If you want to keep the condo and scale, consider refinancing or getting a HELOC or finding partnerships. Ultimately, the decision depends on your goals, the local market, and the potential for growth.

Good luck!

Matthew McCarty · Answer

That's what I need help with, finding the deals. Are there any good resources that you recommend?

Matthew McCarty · Answer

I'm in a similar situation. I have a condo in Connecticut that generates a cash flow of about $750 a month, and I have approximately $130,000 in equity at a 3.25% interest rate. I also have $100,000 in the bank, and I'm trying to figure out what steps to take next. I can't really house hack, as I have a wife and two kids. I’m looking for some advice and guidance.

Keep or Sell?

Most Popular Reply